Labour’s deputy leader, Tom Watson, has told Jeremy Corbyn that he must change direction or face a worsening Labour split after seven MPs quit to form a new movement in the party’s biggest schism in nearly 40 years.

Watson’s emotional intervention came as a number of Labour MPs were poised to follow the founders of the new Independent Group – and after reports on Monday night that some Conservatives were also ready to defect.

Saying that he sometimes “no longer recognises” his own party, Watson urged Corbyn to ensure Labour remains a broad church and reshuffle his shadow cabinet to reflect a wider balance of MPs.

The announcement of the group founded by Luciana Berger and Chuka Umunna represented the most significant challenge to party unity since the “gang of four” senior figures quit to form the Social Democratic party in 1981.

But on a day of drama, recrimination and occasional chaos, Corbyn loyalists derided the MPs as fringe figures who were out of touch with the public.

Umunna directly appealed to MPs from other parties to join the new movement, with attention focused on whether Conservative MPs Anna Soubry, Sarah Wollaston, Nick Boles, Heidi Allen and at least one pro-EU minister could jump ship, if Theresa May heads towards a no-deal Brexit.

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'We have all now resigned': seven Labour MPs quit party – video

Labour MPs also told the Guardian they believe there will be another wave of defections if their party leadership does not move towards a second referendum on Brexit and commit to taking more steps to root out antisemitism from the party.

The MPs had been organising for months but they faced embarrassment within hours of the launch when Smith had to apologise for appearing to refer to people from black, Asian and minority ethnic backgrounds as having a “funny tinge”.

Corbyn, who has repeatedly faced down leadership challenges, showed little sign of panic. He released a statement saying he was disappointed with their departures but highlighted the popularity of Labour’s recent policies and gains at the 2017 election.

He planned to give a speech in London on Tuesday about Brexit and a new commission on lifelong learning, carrying on as normal in the face of the resignations.

Some of his allies took a more strident approach, with John McDonnell, the shadow chancellor, calling on the MPs to “do the honourable thing” and resign from parliament to fight byelections. Momentum, the grassroots group of Corbyn supporters, was even harsher, dismissing the quitters as a “fringe minority of MPs” who wanted to go back to the “Blair years programme of privatisation, tax cuts for the rich and deregulation of the banks”.

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Len McCluskey, the Unite general secretary, accused the splitters of wanting to ruin Labour’s electoral chances, arguing “all their vitriol was reserved for their own party and for the policies that secured them all personal-best votes in their constituencies 18 months ago”.

There had long been rumours that dozens of Labour MPs were likely to quit but the number was in the end much smaller, as some wanted to see Umunna and Berger test the water with donors, supporters and MPs from other parties before committing.

In the end, seven MPs – also including Ann Coffey, Mike Gapes, Chris Leslie, Gavin Shuker and Angela Smith – announced their resignations at a press conference in Westminster, citing their unhappiness about Brexit, the party’s approach to dealing with antisemitism, and Corbyn’s approach to international affairs.

Umunna said it was “time we dumped this country’s old-fashioned politics” and created an alternative. Berger, who has been subject to antisemitic abuse, said it had been a “difficult, painful but necessary decision” for them all, before criticising Labour for becoming “sickeningly institutionally racist”.

Many Labour MPs were dismayed with their colleagues for harming the party’s electoral chances and appealing to centrist Conservative MPs to join a new movement.

Karie Murphy (@karie_murphy)

Those who wish to now sit as independents and vote as independents should have the integrity to stand down and fight elections as independents.

But several other MPs told the Guardian they were considering whether to follow suit, especially if they do not see their leadership tackling the concerns of Berger about antisemitism. Many have little to lose given they face the prospect of possible no-confidence motions and deselection by their local parties before the next election.

There was also strong speculation that several centrist Conservative politicians were considering their future in the party because of Theresa May’s policy towards the EU. Asked whether he could join the movement, Nick Boles, a Tory MP and former minister, dodged the question, saying: “I have not spoken to any of them about their plans and am totally focused on working with MPs of all parties to stop no-deal Brexit on 29 March and to promote Common Market 2.0 as the best Brexit compromise.”

Umunna has worked closely with Anna Soubry, the MP for Broxtowe, Heidi Allen, the MP for South Cambridgeshire, and Sarah Wollaston, the MP for Totnes, on a second referendum.

Even among those with no plans to quit, a string of Labour MPs from Yvette Cooper to Lisa Nandy publicly made clear that they wanted to see the leadership listen to the concerns raised. Watson led the campaign for a different direction, urging colleagues not to treat the departing MPs as traitors. He said Labour had been too slow to tackle complaints of antisemitism and warned that “time is short for us to confront the scale of the problem and meet the consequences, to keep others from leaving”.

“To put it mildly, we need to be kinder and gentler,” he said. “I love this party. But sometimes I no longer recognise it.”

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In a fiery meeting of the parliamentary Labour party on Monday night, Ruth Smeeth, a Jewish Labour MP who intends to stay in the party, broke down in tears as she urged more action against antisemitism complaints. Lord Harris warned in the meeting that peers could also defect to the new Independent Group, which ultimately aims to become a new party.

MPs leaving the meeting said Ian Lavery, the party chair, had praised the manifesto and its popularity and vociferously denied the party was institutionally antisemitic.

Louise Ellman, another Jewish MP whose Liverpool Riverside constituency neighbours Berger’s, said the party had no comprehension of the “enormity of what has happened” on Monday. “I didn’t feel there was reflection or action at all … [Lavery] gave me no reassurance at all that the Labour party would deal with it in the proper way,” she said. “To me he [Lavery] made it worse, virtually everyone who spoke was outraged.”

Ellman said she would not be leaving the party herself. “I’m just as concerned as all the people who left this morning are, but I’m going to carry on and try and fight this from within the party,” she said.

Ian Austin, another Labour MP, sounded even less enthusiastic about remaining in the party. “If this is the best the leadership can do then I think this will result in more people leaving,” he said. “I think today’s events will mean lots of people will be reflecting.”

Anna Turley, the MP for Redcar, argued that “instead of demanding loyalty with gimmicky pledges perhaps the leadership should ask itself why decent hardworking moderate MPs feel there is no place for them in our party”, adding that the “leadership must listen on Brexit and antisemitism”.

Meanwhile, it emerged that Derek Hatton, the former deputy leader of Liverpool council who was expelled from Labour in the 1980s for being a member of the leftwing Militant Tendency, has been readmitted to the party.